From April 2022 (Tax year 2022/2023), HMRC’s Making Tax Digital (MTD) programme will be extended to all VAT-registered businesses (voluntarily) with turnover below the VAT threshold (£85,000).
At present, all VAT registered businesses and organisations with taxable turnover above the VAT threshold of £85,000 are required to maintain their accounting records digitally and submit their VAT returns to HMRC using compatible software.
From April 2023 (Tax year 2023/24), MTD will also apply to taxpayers who file income tax self-assessment tax returns for business or property income that exceeds £10,000 a year. This will apply to all self-employed and landlord businesses with turnover in excess of £10,000, and as such these individuals will need to maintain digital VAT records and file returns digitally.
There are currently only six software products that are compatible with Making Tax Digital for income tax self-assessment (Absolute, APARI Software Ltd, Cirrostratus Exedra Ltd, Forbes, IRIS and Rhino.
A consultation into MTD and corporation tax is set to take place later this year.
Making Tax Digital changes will affect the way that taxes are reported, not the level of tax that is collected
Under MTD, businesses and landlords will switch to submitting quarterly summaries to HMRC, as well as a fifth and final year-end summary report for each tax year. This final declaration will finalise the business income and any accounting adjustments will be made at this point, such as claims for capital allowances. This final declaration will also include all other income sources outside of the sources reported through the quarterly reports.
Dates and deadlines & further support
The first quarterly return under MTD for income tax is due in the fourth month of your accounting period and you will then have to file with HMRC every three months. For example, if you have a 31 March or 5 April year end, your first return will be due on 31 July 2023 or 5 August 2023 (full details of deadlines yet to be confirmed by HMRC).
HMRC will expand its pilot service from April 2021 to allow businesses and landlords to test the full end-to-end service before the requirement to join.
If you run a business or are self-employed and have any queries regarding Making Tax Digital and how the changes may affect you, please get in touch with your usual Smith Cooper contact, or click here.